How Structured Deposits SIPs Affect the Crypto World

Reading time – 5 min.

Traditional exchange products are being adapted to the new conditions of the financial market. SIPs have entered the arena (they are also Structured Investment Products or structured investment products), which allow minimizing the consequences of sharp jumps in the price of cryptocurrencies. Let us consider in more detail what is characteristic of this type of deposits.

SIPs in Traditional Exchange Markets

For any financial market, the rule is true: the higher the potential profit, the greater the risk of the investment. Can this pattern be changed? With some reservations, yes.

An effective way was found back in the early 2000s – using SIPs.

The emergence of a product with this name on the financial market was preceded by the eternal desire of investors to keep their deposits – even when the market goes against their strategy. With the usual approach, a fall in the price of assets leads to losses for investors who have invested in them. A series of stock market crashes in the twentieth century was an excellent confirmation of this. Even the diversification of the investment portfolio did not always save the situation. After all, no one could guarantee the simultaneous growth, for example, of bonds to compensate for losses when the value of any shares fell.

Large players in the exchange market – UBS, Barclays, Goldman Sachs – offered their customers special products that guaranteed break-even investment. Even with the worst development of the situation on the exchange, clients received a small profit, blocking inflation. With a favorable outcome, the return on investment reached 15% or even 50% per annum. How did it manage to be implemented?

The company that manages the investor’s assets mainly invests in high-quality bonds. The cost of these securities is the cheaper than the face value, the more time until their maturity. When the maturity of bonds comes to an end, their issuer is obliged to redeem the paper at face value.

For example, the management company disposed of client funds in the amount of $10,000. It bought bonds with a maturity of 5 years for $8,000. The remaining $2,000 was invested in more highly profitable and risky instruments: stocks, options, etc.

This approach to capital allocation guaranteed clients at least a break-even investment when the market fell and a good profit when it grew. To understand the difference between SIPs and a regular investment portfolio, consider this example:

  • Trader A has invested $100,000 in an index fund based on the S&P 500. Trader B has invested the same amount in SIPs, which similarly tracks the S&P 500.
  • If the S&P falls by 10%, Trader A will lose 10% of his investment. Trader B has nothing to lose, and even gains, since the amount of his contribution is covered by the redemption of bonds. In addition to this, the cost of selling options on the S&P 500 also comes into profit.
  • If the index goes up, then both traders will earn. But trader B will make a smaller profit than trader A. After all, a smaller part of his investments participate in the growth of the market.

This example shows the advantages and disadvantages of SIPs. The benefits are:

  • Break even investment in 99% of cases. Of course, an investment company may go bankrupt and not pay the guaranteed income. But deposits in an ordinary bank are not insured against this either. Otherwise, losses are minimal.
  • A predetermined time frame for making a profit. SIPs-contracts are concluded for a certain period of time, after which the investor has the right to expect to receive a profit from investments. There is no need to constantly monitor the market in search of a moment for a successful exit from it.
  • Even if the market crashes, the return on investment from SIPs will be higher than, for example, a deposit in a bank.

Of course, there are also disadvantages:

  • Quite a high threshold for the cost of SIPs products. Despite the constant reduction of the bar for entry into SIPs investment programs, the minimum cost of investments will not be less than tens of thousands of dollars.
  • Risk of loss of profit. With a successful investment in the traditional way, the investor receives all the profits. When using SIPs, the yield is lower due to the smaller amount of investments in high-risk instruments.
  • The impossibility of returning the investment at any time. Investments in SIPs are calculated for a certain period, in case of violation of which penalties are applied.
  • Profit is paid at the end of the contract term. SIPs do not provide for regular payments.

SIPs in the cryptocurrency market

For retail investors, the high volatility of the crypto market is more often perceived as an opportunity to make good money on the fluctuations in the value of selected currencies. For institutional investors, high volatility, on the contrary, is a warning factor. In their first place is the use of exchange instruments to hedge potential risks.

The first such instruments were bitcoin and ethereum futures introduced on the Chicago Mercantile Exchange (CME). However, the availability of futures alone did not satisfy the demand from the largest investment companies. It took more than two years for cryptocurrency SIPs to hit the market.

In March 2021, Gekkoin startup announced the launch of SIPs for EU residents. Traditional bonds act as a stabilizing asset in the product, while cryptocurrencies are highly profitable. So far, only Bitcoin (BTC), Ethereum (ETH) and Monero (XMR) are on their list. The company guarantees customers a 100% return on investment in the event of a market fall and a profitability of 2–4% per annum. With positive dynamics, profitability is expected at the level of 16-50%. What does it look like in practice?

For example, an investor has invested $1,000 in SIPs. With the growth of bitcoin by 2 times, he will receive a profit of $ 160-500, depending on the chosen investment plan. And if the cryptocurrency price drops even by 10 times, his profit will be $20–40.

Thus, with SIPs it is realistic to make money not only in a bull market, but also in a bear market. And this is especially true for inexperienced and novice investors.

In addition to Gekkoin, ACDX, Lykke, and INVAO brought their SIPs to the market. True, they offer clients a fully cryptocurrency portfolio content.

Prospects for investors

Financial products that minimize investment losses are being actively introduced into the high-risk area. This is especially noticeable in the cryptocurrency direction. The time is not far off when the crypto will be included in the list of highly profitable assets of financial institutions. Change will come about through:

  • close attention of governments of different countries to digital money and legislative regulation of the cryptocurrency market;
  • the emergence of traditional financial products optimized for the specifics of the market;
  • inflow of institutional investments.

Thus, millions of investors around the world will have access to another profitable form of income.


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